Autumn Statement: Capital investment support for companies

Since the Government’s policy on full expensing was announced in the 2023 Spring Budget, a criticism has been the fact that it was set to expire at the end of March 2026. This created a potential cliff edge and failed to address calls from businesses for a capital allowances regime which delivered long-term certainty. The policy intention had always been to make full expensing a permanent feature of the capital allowances regime, subject to the caveat that it must be ‘economically feasible’. In the Autumn Statement, the Chancellor determined that the time has come when the sums add up and full expensing will be made permanent. In addition, tax incentives in investment zones and freeports have been extended, and new investment zone locations were announced in England and Wales. 

Most businesses will be familiar with the full expensing regime (or its predecessor, the broadly similar super-deduction), but as a reminder:

• The relief is a first-year allowance available to companies, applying to expenditure incurred from 1 April 2023. The rates are:
  • 100 percent on main pool expenditure which otherwise receives 18 percent writing down allowance per annum; and
  • 50 percent on special rate pool expenditure which otherwise receives 6 percent writing down allowance per annum;

• The plant and machinery must be unused and not second-hand. Also it must not be a car, given to the company as a gift, or bought to lease to someone else (although background plant and machinery leased by a landlord within a building is unaffected by the leasing exclusion);
• The relief applies equally to capital expenditure on software, including software accounted for as intangible fixed assets (where an election is entered into); and
• There is a balancing charge on disposal of assets, so tracking assets and monitoring disposal proceeds will be required.

Unlike the super-deduction which preceded full expensing, there are no requirements for expenditure to be contracted after a certain date. The ownership tests for full expensing are simpler than under super-deduction, allowing companies to claim the relief on deposits paid in relevant periods prior to taking legal ownership of assets.

The announcement provides certainty for companies looking to invest in UK infrastructure and enable long-term investment decisions to be made, and should therefore be broadly welcomed by most companies. It also makes the UK an attractive place for inward investment in comparison to other G7 nations. However, despite the Chancellor’s description of full expensing as “the largest business tax cut in modern British history”, this measure essentially provides an acceleration of relief and so an upfront cash tax saving rather than a permanent tax reduction. There are still many taxpayers, including companies with significant losses and businesses outside the scope of corporation tax (such as partnerships and sole traders) who will not benefit from full expensing. Given full expensing’s broad remit, it does little to incentivise investment in specific policy areas such as renewables or green technologies.

The Treasury has also announced a broader review of the capital allowances regime with the intention to simplify it, as well as potentially widening the net of full expensing to businesses who have previously been unable to benefit, for example lessors.

The Chancellor also announced the creation of four new Investment Zones in the West Midlands, the East Midlands, Greater Manchester and Wrexham and Flintshire, as well as extending the tax reliefs available at Freeports and Investment Zones (including enhanced capital allowances, enhanced structures and buildings allowances, stamp duty land tax relief and secondary Class 1 national insurance contributions relief) from five to 10 years. These had been due to expire in 2026. For Investment Zones and Freeports in Scotland and Wales these extensions are subject to discussions with the relevant devolved administrations.

This is likely to provide a boost for areas already designated as Freeports and Investment Zones, as well as attracting investment to the newly created ones, albeit within a relatively small geographical region.

For further information please contact:

• Ryan Ballantyne
• Ian Barwick